The idea of paying to have something made, passing it on to someone else to sell, who will then pay you in a few month’s time, sounds like the cashflow diagram from hell. Unless the profit margins are huge, and even then it’s not ideal, wholesaling in fashion is difficult. Small brands, especially, need the constant stream of cash, traditionally have tighter margins, and need the crucial feedback of information with regards to successful products that can inform future decisions and where to put their limited resources.
The fashion wholesale model is broken and, now, even the big boys are deciding to step back. Luxury brands are also realising, finally, that the true value of selling directly to consumers is growing a database of customers and understanding exactly what they want in a shorter amount of time and being more reactive to those needs. Realising something is or isn’t selling in 3 to 6 month’s time is pointless and is what will suffocate even the biggest of brands.
Many luxury brands sat back and twiddled their thumbs over the past two decades while huge fashion corporations like YOOX/Net-A-Porter and MatchesFashion.com have grown with enviable customer lists and used huge amounts of information to improve their offer and grow further.
Now, the wholesale middle man is being pushed back to a point where brands want more control, know they will make more money directly and won’t be at the whims of a fashion buyer every season as to whether they’ve made the cut or not.
Prada announced last month that is would reduce its wholesale network in Italy and Europe in a push to have uniform prices for its products across different outlets and reduce markdowns. Before that, in March, the Milan-based company said it also would stop offering end-of-season promotions at its own shops in a bid to boost margins and protect its brand. They’ve obviously been watching the success of Gucci’s no-sale model and product that continues over seasons and doesn’t seem to quickly date.
In a short filing with the Hong Kong stock exchange, where the company is listed, the company's chairman Carlo Mazzi stated, “The Prada Group considers it essential to ensure greater consistency in pricing policies across retail and digital channels. This strategic review is intended to further strengthen the Prada Group brands with the aim of supporting sustainable long-term growth.”
Prada said it would end relations with some Italian and European wholesale partners and gradually replace them with new digital and e-commerce players.
While they’ve tried to improve their website, added a broader selection and launched onto sites like Mr Porter, Prada is doing it at a time when the brand has lost momentum and isn’t quite as in demand as it once was. It said the leather goods category will be the most impacted with the changes and this is their biggest segment with the greatest margins.
This DTC (Direct To Consumer) approach is something born from the internet and social media. The brand owns the customer and has a direct relationship. It knows their e-mail and address. It also knows what they have bought before and, most likely, things that may interest them in the future. As personalisation increasingly becomes more sophisticated, this will also help to offer more choices and brands can follow their customers through their actions.
Physical retail third party wholesale accounts allow you less control and inject potential disruption in your cherished luxury supply chain to the customer and, as Prada says, you can keep the prices constant and consistent (probably higher) throughout one geographical region.
Kering, owner of Gucci, Saint Laurent and Balenciaga, has announced it will take back control of its e-commerce operations, focusing on own branded sites where it can control its image and client data. Excluding Gucci, the YOOX/Net-A-Porter group operated e-commerce websites for most of the brands within the Kering group. The joint venture will now end in the second quarter of 2020. While not completely cutting off their nose to spite their face, Kering wants to turn more of its collaborations with third-party, multi-brand retailers such as Farfetch or Matchesfashion.com into what it calls ‘online concessions’, where it controls everything from the product assortment to their presentation. "Each time we move from wholesale to a concession we see our top line increase in a material way,” said Grégory Boutté, Kering’s Chief Client & Digital Officer, and former vice President of eBay. Kering has stated it was ‘not against wholesale,’ and did not plan to end its relationships with third parties altogether.
This is will be a play of power and something that I think will be difficult especially with the complexities of something like FarFetch coming from multiple retailers in different locations. This sounds like wanting your cake and eating it; we want your database, but in our own way. I’m not sure that many retailers will relinquish that amount of control, especially when you consider how many brands they sell and also the loyalty they now instil in these hard won customers.
Kering's total online sales — when including the business done through third party platforms, calculated at retail and not at lower wholesale prices — came to 9.4 percent of the group's 2018 revenue. Web sales through its own brand websites and online concessions made up 4.7 percent of revenue. This has huge room to grow.
Boutté has built up his digital team from 4 people upon his arrival at Kering in 2017 to over 80 people, today. He has realised the power of data. “The more data we have, the more precise our algorithm is and the better the experience is. The other thing is that it should lead us to excellence in terms of our operations.” he said.
Across the luxury goods industry as a whole, e-commerce accounts for around 10 percent of business today and should reach 25 percent of sales by 2025, consultancy Bain estimates.
This is about information and control. Controlling discount, controlling points of sale and controlling presentation. You can control more online, even with third parties. You can see it from anywhere. It's those pockets of physical wholesale boutiques or department stores in small towns that are harder to police and often unsold stock disappears into the grey market and ends up on discount sites and with other retailers.
Where once luxury retailers didn’t want to get their hands dirty, they are now rolling up their sleeves and have their eyes on the online prize; higher prices, more full price sell-throughs and control of that all important ‘data’. This will get more ferocious as the market becomes more saturated, growth slows and customers get increasingly more expensive to acquire.
I predict many brands will try to be exclusive to their mono-brand websites if they don’t get what they want with their third party partners, or possibly try the LVMH 24 Sèvres, now rebranded as 24S, route, but it will be hard. And expensive.
Retailers like FarFetch and MatchesFashion.com are decades ahead and thrive on new and small designers adding that colour and point of difference online. Luxury mono-brand websites often look boring, sterile and empty. People don’t shop in single brands, particularly when they are browsing. While the idea is logical and makes sense to reduce wholesale and take back more control, it will be far more complicated than that and add multiple costs to their business models.
When wholesaling multiple brands you’re as strong as the market. You can’t sell what isn’t available. Obvs. Often there is a demand from your customers with nobody fulfilling the supply.
I’ve spoken to buyers at large designer websites, in the past, who have said that many brands have forgotten about the basics and instead only offer key, statement pieces of the season. Tiger, anybody?!
Left - RAEY - AW17
They’ve picked up lesser known brands to fill these gaps - sometimes a guy just wants a plain white shirt without a snake on it - but, ultimately, they know what they need and often the only way to find it is to create your own “house” label.
Matchesfashion.com launched “Raey” a few years ago and, Mr Porter is launching a “Mr P” own label, today. Own labels used to be looked down upon as the lower/entry end of the retailer’s offering, but, now, they are offering something you can’t get from the other brands or give the retailers some consistency and reliability, whether that be black trousers, simple grey v-necks, or something more directional like Sta-press denim.
There’s obviously a demand. Since its inception, in 2015, Raey, matchesfashion.com's in-house brand, has seen 85% growth year-on-year with strong growth across knits and jersey, in particular. A standalone store opened in April 2017 in Notting Hill, in a former franchise store owned by matchesfashion.com.
According to the blurb, the creation of MR PORTER’s “MR P.” brand has been informed by seven years' of customer insight - more than 600,000 shoppers to date - and the invaluable feedback and shopping patterns they’ve observed since launching in February 2011.
The MR P. launch collection has 53 items across ready-to-wear, including 24 “Essential" styles, available year-round, and 29 seasonal styles within the debut capsule. The majority of the collection is made in Italy, with select items made in Portugal, and the denim in Japan. Pricing ranges from £55 for the core T-shirts, through to £875 for the capsule’s leather aviator jacket.
Right - MR P. - the new own label by MRPORTER
The chosen muse for this launch capsule is 20th-century British painter and portraitist Lucian Freud, during his prime in 1950s London.
“At MR PORTER, we are – first and foremost – product people. This passion for quality, uniqueness, style and versatility has been the backbone to developing our business for the past seven years. The launch of MR P. has therefore been quite organic for us; we felt there was a space in our mix of 400-plus brands for something that could present a unique take on wardrobe classics and also present regular capsules of more trend- and seasonal-driven pieces throughout the year. We like to think we have an unparalleled view of the male wardrobe, garnering the combined knowledge of our buyers and editors, and MR P. is ultimately the result of that: smart details, easy pieces and enduring style.” says Toby Bateman, Managing Director, MR PORTER.
The second limited-edition MR P. capsule will launch in February, followed by a third in April. MR P. will introduce shoes and accessories for AW18.
This is a case of these retailers trying to fill the gaps and offer pieces that are consistently available. As these businesses get bigger and bigger then can afford to offer more and also a point of difference that makes them a destination rather than just another retail site selling the same designers.
It’s also important to note that wholesale is so difficult, now, that many brands are moving away from it or closing altogether. Smaller brands can’t afford to tie all their money up in stock, which they won’t get money from until the end of the season or, could, at worst, be sent back to them. This cashflow problem is what has killed off many small brands and also deters many from the wholesale model.
Plus, many people are happy with affordable basics so look to designers for something different or recognisable which has driven designers to only offer these styles. Matchesfashion.com and MRPORTER are so big now they can offer these own-label collections. What they have to remember is, these “Essentials” are the workhorses of a man’s wardrobe and as such need to be good quality in order to satisfy the customer.
Left - Unbranded "Essentials" mixed with a few capsule pieces is part of the new MR P. ethos